Page 7 - EBA 2013.2869 Risk Assesment Report final proof4

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R I S K A S S E S S M E N T O F T H E E U R O P E A N B A N K I N G S Y S T E M
5
book and promoting regulatory convergence
across the Union, in both rules and practices.
With regard to capital levels, over the last
months, EU banks and respective capital
positions continued to maintain a notewor-
thy increasing trend, notwithstanding the
challenging conditions in financial markets.
Nonetheless, the continued deterioration
of both the quality of banks’ loan portfolios
and profitability may also pose challenges in
some cases to the maintenance of adequate
capital levels. Therefore, European super-
visors will need to continue monitoring the
increasing credit risks and the smooth and
timely transition to the CRR/CRD framework.
On the asset side of the EU banks, there is
an ongoing and limited de-risking process
through the reduction of balance sheets and
loan books across the EU, and the optimal
pace of deleveraging justifies close attention.
There is evidence of a continuing deteriora-
tion of the quality of banks’ loan portfolios
throughout 2012 and the first months of 2013.
The increasing credit risks and the deterio-
ration in asset quality are spread across the
EU. The ratio of impaired loans and past due
(> 90 days), in terms of weighted average, has
increased from 6 % in June 2012 to 6.3 % in
December 2012 (the highest since 2009).
Loans in arrears, and impaired assets in par-
ticular, continue to increase and provisioning,
in some cases, has not increased in conform-
ity with rising credit risks, which continues
to raise questions on the extent to which
provisioning is adequate. Banks with a cov-
erage ratio of less than 25 % increased and
represented approximately 14 % of total key
risk indicator (KRI) sample assets in Decem-
ber 2012. At the same time, there is a general
market view that forbearance is practised,
particularly, in residential mortgages, com-
mercial real estate, and real estate developer
loans. In addition, banks active efforts to deal
with problem assets have been to some ex-
tent hampered by the absence of a lively sec-
ondary market in banks assets in the EU. The
EBA agreed, in May 2013, on recommenda-
tions to supervisors to conduct asset quality
reviews on major EU banks in order to dis-
pel concerns over the deterioration of asset
quality (
1
). In addition, the EBA proposed har-
monised definitions on forbearance and non-
performing exposures (
2
). These consistent
EU-wide definitions are a key step in the early
identification of risks to the financial stability
at EU level and will facilitate further actions,
such as asset quality assessments.
With reference to the EU banks’ liability
side, the funding conditions have improved
with some consistent banks’ issuance of un-
secured debt. There has also been some evi-
dence of deposit inflows from both retail and
corporate customers, including into banks
in countries with financially stressed sover-
(
1
) EBA recommends supervisors to conduct asset quality
reviews and adjusts the next EU-wide stress test timeline.
http://www.eba.europa.eu/-/eba-recommends-supervi-
sors-to-conduct-asset-quality-reviews-and-adjusts-the-
next-eu-wide-stress-test-timeline
(
2
) EBA Consultation Paper on supervisory reporting on
forbearance and non-performing exposures. http://www.
eba.europa.eu/-/eba-consultation-paper-on-supervisory-
reporting-on-forbearance-and-non-performing-exposures